How to keep your loan from being derailed
A mortgage prequalification letter is a great tool for anyone who wants to borrow money to buy a home. But a prequalification letter is just the start of the home-loan process; most borrowers also face a number of additional hurdles that must be jumped before their loan is approved.
Here are some situations that may cause a delay in your loan:
A prequalification letter can be based on information from just one credit bureau, even though three major bureaus keep track of consumers’ credit histories. If a subsequent credit check turns up adverse information that wasn’t discovered before the prequalification letter was issued, the lender might deem the borrower to be less well-qualified to obtain a mortgage.
Lenders rely on documentation to verify information on the borrower’s loan application. If the borrower fails to provide certain documents, the lender could delay or deny the loan, even if a prequalification letter was issued. Examples of documents that might be requested include copies of paycheck stubs, bank account statements and income tax returns.
Prequalification letters typically contain conditions related to the property that must be met before the lender will approve the loan. Examples include an appraisal and title insurance. An appraisal is an opinion of the value of the property. Title insurance protects the lender from undiscovered liens or claims of ownership against the property. If the appraised value doesn’t meet or exceed the agreed-upon sales price, or if a title search uncovers a lien on the property, the loan process could be delayed or derailed.
Other conditions, or "subject tos," can arise in the context of the appraisal. For example, if the sellers started to remodel their kitchen before they decided to sell their home and the unfinished remodel would be costly to complete, the appraiser might make his or her opinion of the home’s value subject to completion of the work.
On the other hand, if a home needs only minor or cosmetic repairs, the appraiser more likely will adjust the value of the property accordingly. Again, for the loan to go forward smoothly, the appraised value of the property should meet or exceed the agreed-upon sales price.
A search of property ownership records also can turn up issues that may delay the loan process. One example is the discovery of open liens against the property, perhaps due to unpaid property taxes or contractors who claimed they weren’t paid for work they performed on the property.
While any of these situations can delay the loan process, none of them is necessarily the end of the road for the borrower’s financing. In many cases, patience and further negotiation can lead to a solution that will satisfy the lender and allow the loan process to move forward.